Tag Archives: exempt employee

Fewer Employees Will Qualify as Exempt From Federal Overtime Laws Under New Rule

Last Overtime2summer, the Department of Labor (DOL) issued a proposed rule that would increase the minimum salary requirement for workers to qualify as exempt from federal overtime rules. The DOL recently finalized the rule, which will go into effect on December 1, 2016. The DOL estimates that 4.2 million workers will now be eligible for overtime pay as a result of the changes.

Federal law requires employers to pay employees time-and-a-half when they work more than 40 hours in a workweek. However, employers can avoid paying overtime if employees fall within certain exemption categories. Some of the most common exemptions are the “white collar” exemptions for executive, administrative, and professional workers. In addition to meeting other requirements particular to each exemption, these employees must all be paid a minimum salary. The minimum salary has remained at $455 per week (or $23,660 annually) for many years.

Under the new rules, the minimum salary will increase to $913 per week for the white collar exemptions, which is the equivalent of $47,476 per year. The minimum salary will be automatically adjusted every three years, beginning on January 1, 2020, to make sure that it is consistent with increases or decreases in workers’ average weekly earnings in the U.S.

The new rule also increases the minimum salary necessary to qualify for the highly compensated employee exemption. This exemption is reserved for employees who perform office or nonmanual work and perform at least one of the duties required by the executive, administrative, or professional exemptions. The minimum salary will increase from $100,000 to $134,004 on December 1, 2016 and will receive automatic updates every three years as well.

In the past, employers could only count regular wages towards the salary threshold requirement. However, the new rule allows employers to count commissions and nondiscretionary bonuses (bonuses for meeting production goals, for example) towards up to 10% of the salary requirement, as long as such payments are made on at least a quarterly basis.

Department of Labor Proposes New Overtime Rules

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Earlier this month, the Department of Labor announced its plans to establish a new rule that would allow millions of additional workers to earn overtime. Following an executive order by President Obama, who has advocated for increasing the wages of middle-class workers, the Department of Labor has proposed a rule that would increase the minimum salary necessary for a worker to qualify as exempt from the overtime rules.

Under the federal Fair Labor Standards Act, all employees must receive overtime when they work more than 40 hours in a week, unless they are exempt from the overtime rules. The most common exemptions are the so-called “white-collar” exemptions for certain professional, managerial, and administrative workers. To qualify as exempt under these categories, a worker must make a minimum weekly salary. Currently, the minimum is $455 per week, which is the equivalent of $23,660 per year.

The new rules would increase the minimum weekly salary to $970 per week, which is roughly $50,440 per year. This would make a large number of lower-paid managers, professionals, and administrative employees eligible for overtime pay. For example, a retail store manager who makes $30,000 and works 50 hours a week will now receive overtime pay for those ten extra hours.

Until now, increases to the minimum salary have been infrequent, the last time being in 2004. The new rules would automatically adjust the minimum salary for inflation in the future. This would prevent the exemption requirements from becoming outdated and ensure that receiving overtime is the rule, rather than the exception, for most workers.

The Department of Labor will be accepting comments on the proposed regulations until September 4, 2015. Absent any challenges from Congress, the new rules could go into effect as early as next year.

For more information on the professional, administrative, and executive exemptions, including additional requirements that must be met, see Understanding the “White-Collar” Exemptions.